Facts that you didn’t know about the million micro, small and medium enterprises in Kenya

The good news is that there are some seven million micro, small and medium enterprises (MSMEs) that employ 15 million Kenyans, nearly 90 per cent of all the jobs in the country.

The bad news is that majority of them will close shop within five years of establishment because of shortage of operating funds, raw materials, government regulation and the lack of skilled manpower continue to affect growth of micro, small and medium establishments in the country.

Government Funding

Despite the much talk about the government assist youth, women and the disabled to start businesses, only, there was almost no mention of the government funds as source of money for start-up capital in a survey done by the Kenya Bureau of Statistics. Only 0.1 per cent mentioned government funding as a source.

Indeed, the report also shows that 54.9 per cent of the businesses which closed down during the period were owned by women – one of the groups targeted for government assistance.

More than 80 per cent of entrepreneurs in Kenya start their businesses with their own funds or funds from family members.

Those who get loans to be repaid with interest from family and friends make up 4.2 per cent making that source of money the second most important.

Banks, like the government are much overrated source of funding for small businesses. Their contribution is less than five per cent, meaning that if the banks closed shop, the Kenyan economy would still be healthy.

Chamas

Chamas – small voluntary groups – are a source of money for starting businesses for more than three per cent of entrepreneurs while non-bank credit institutions reach only one per cent.

As source of business startup capital, the cooperative sector is far behind, too, with only 0.1 per cent using the sector for business funds.

Last year alone 783,000 MSMEs closed shop as compared to 170,000 in 2011. The closure according to the report accounted for 35.4 per cent of the total.

Supermarkets in delayed payments

Although it is not started in the survey, the causes of shortage of operating money could be linked to the increased delayed payments by big businesses and the governments – both county and the national government. Some county governments have debts that have been outstanding for more than two years – most of them from small businesses.

Complaints have also been raised about large businesses, especially the supermarket – that does not pay suppliers. Only recently it was reported that the top supermarket chains, Nakumatt, Naivas and Tuskys had debts amounting to eight billion shillings and that they were either unable or unwilling to pay suppliers. Incredibly some of the debts date back to 2014.

The survey shows that the average age of establishments at closure was 3.8 years. Normally, a business that survives its first year of operation, will survive and grow unless an extraneous thing – such as non-payment or delayed payments – interferes.

“The sector is key in the realization of Vision 2030 goals, which seek to transform Kenya into a newly industrializing economy in 14 years,” according to Devolution Cabinet Secretary Mwangi Kiunjuri, but it is obvious the talk is not matched by actions.